Former MCX employees can't sell ESOP shares for a year after IPO, says Sebi

Capital markets regulator Securities and Exchange Board of India (Sebi) on Friday said shares held by ex-employees, allotted under the employee stock options plan (ESOP), will have a lock-in period of a year after the initial public offering (IPO).

According to Sebi ICDR (Issue Capital and Disclosure Requirements) Regulations, the entire pre-IPO shares held by persons other than the promoters, are not allowed to be sold for one year. Guidelines also provide the provisions related to lock-in of pre-IPO shares will not be applicable to the shares allotted to employees under ESOP, subject to certain conditions.

Sebi, however, has said if anyone ceases to be an employee of a company on the date of allotment of shares pursuant to the IPO, the shares held by such a person cannot be exempted from the one-year lock-in provision.

Besides, even employees of the erstwhile holding company, will not be considered employees for the purpose of exemption from the one-year lock-in provision with regard to the shares allotted under previous ESOP schemes.

The regulator took this position while offering informal guidance to the Multi Commodity Exchange (MCX), which had sought Sebi’s stand on the subject after one of its ex-employees requested for exemption of lock-in provisions.

The commodity bourse asked for Sebi’s guidance on “whether the employees of the company, who have received shares pursuant to the ESOP schemes and who have ceased to be employees of the company as on the date of allotment of shares pursuant to the IPO, would be considered as employees”.

MCX also sought regulator interpretation on whether existing employees of Financial Technologies India Ltd (FTIL), which ceased to be the holding company of MCX at the time of the initial public offering (IPO), who have received shares under ESOP would be considered as employees for the purpose of exemption from the one-year lock-in.

Sebi in its reply to MCX said, “Any person who has ceased to be in the employment of the company as on the date of allotment of shares pursuant to the IPO is not considered as employees and hence the shares held by them would not be considered for the purpose of exemption from one year lock-in.”

The regulator said shares held by ex-employees have to be locked in under Regulation 37 of Sebi (ICDR) Regulations, which regulates lock-in of specified securities held by persons other than promoters.

Sebi, however, has said the position it has taken is only with respect to the clarification sought by MCX on the applicability of the Sebi ICDR Regulations and does not affect the applicability of any law and other Sebi regulations.

The regulator had taken the same stand while offering informal guidance to Firstsource Solutions in 2007. Under Sebi’s Informal Guidance Scheme, any market participant can seek interpretation or clarification on any provisions of Sebi Acts in the form of a no-action letter or interpretive letter.